China Revises Foreign Investment Catalog

Dezan Shira & Associates

Posted: 24th August 2011 09:10

Following the principles in the State Council document “Opinions on Further Improving the Work of Utilizing Foreign Investment,” China’s National Development and Reform Commission (NDRC) has recently added a number of changes to the “Foreign Investment Catalog.”

Initially introduced by the NDRC and the Ministry of Commerce in 1995, the “Foreign Investment Catalogue” has been revised four times so far, with the most recent version updated in October 2007. Stipulating “encouraged,” “restricted” and “prohibited” categories that distinct foreign invested projects fall into, the Catalog has long been a major guideline of China’s market openness strategies. The newly released revisions, following the disclosure of China’s 12th Five Year Plan, arrive at a significant timing. Not only do they reflect China’s commitment to continue opening its market to foreign investment, but they also show China’s attempts to better utilize foreign investment for the country’s own industrial upgrade and national security interest.

While so many newly-added encouraged items are energy related, it is not hard to understand that China wants to further restrict projects that require heavy energy consumption or cause elevated levels of pollution. Atmospheric and vacuum refineries with an annual output below 10 million tons, catalytic cracking with an annual output below 1.5 million tons, continuous reforming (including aromatics extraction) with an annual output below 1 million tons, and hydrogen cracking production with an annual output below 1.5 million tons have all turned into projects in the “limited” category, where foreign investors will find it more difficult and time-consuming to obtain approvals for related projects from Chinese authorities.

The newly added “prohibited” items are highly related to China’s current social issues and national interest. As a result of China’s stricter controls on its housing bubbles, the foreign investment in the construction and operation of villas is moved from the “restricted” category to “prohibited” list. In addition, fresh foreign investors will also be excluded from China’s domestic express mail delivery businesses in the future.

Dezan Shira & Associates is a specialized foreign direct investment practice, providing business advisory, tax, accounting, payroll and due diligence service to multinationals investing in China, Hong Kong, India, and Vietnam. Established in 1992, the firm is a leading regional practice in Asia with nineteen offices in four jurisdictions, employing over 170 business advisory and tax professionals.
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